Tag: Analysis

Even at this late date, I still run into people are wary of the LNG export potential of pipelines like PennEast. And for those who believe LNG export is a real thing, there’s a contingent that believe exports will be a net positive for people living here in the U.S. And doubly so for us living in the North East.

In reality LNG exports benefit only the fossil fuel companies. The rest of us will suffer grave environmental and economic damage if this is allowed to happen.

A report from energy.gov explains exactly why this is so. You can read the full report here:

As I’ve mentioned in this space before, LNG exports will not serve to lower prices here in the U.S. Oh no! Quite to the contrary, LNG exports will open up a new category of competition against domestic consumers. And this new competition is happy to pay 4x what we pay for natural gas in the U.S.

Economic theory tells us when changes like this happen in a market, prices seek to reach a new equilibrium point. In this case prices in markets such as India, Asia, and Europe will go down.

Meanwhile – prices here in the U.S. will increase.

What I didn’t realize is how steep the increase will be.

According to the government figures, LNG exports will result in a 14% to 36% increase in domestic natural prices at the wellhead. The impact to consumers will be felt as a 3-9% increase in our natural gas bills, followed by an additional 1%-3% increase in our electrical bills. The exact amount depends on how quickly the industry moves to exports. The slower the go the slower the increase. And of course, the flip side is true: the faster they go, the steeper the rise and the more quickly we’ll see it.

This is not only bad for us; it’s bad for the environment too. One obvious impact is the number of export terminals that will have to be built to support all this LNG export. A secondary one is the number of pipelines that will have to be built to satisfy this new demand. And, the icing on the cake is that natural gas prices here in the U.S. will rise to the point where they are no longer competitive with coal, and as such electrical generation plants will prefer to burn coal over natural gas.

Every one will benefit in this scenario! The frackers drilling in PA, the pipeline operators, the LNG export people, consumers in India and Japan and Europe. Natural gas producers will see an increase of $14 billion and $32 billion in revenue from this so they’ll certainly be benefit big time.

Oh, except for us. U.S. citizens will see their land polluted and their utility prices rise as a result of this. As will electrical generators, industrial users, and transportation users of natural gas here in the United States.

And so, for these reasons, companies like PennEast get to invoke eminent domain and steal our land “for the public good”.

Don’t take my word for it. Here is a summary of the report on page 14 of the PDF:

IMPACTS OVERVIEW
• Increased natural gas exports lead to increased natural gas prices. Larger export levels lead to larger domestic price increases, while rapid increases in export levels lead to large initial price increases that moderate somewhat in a few years. Slower increases in export levels lead to more gradual price increases but eventually produce higher average prices during the decade between 2025 and 2035.

• Natural gas markets in the United States balance in response to increased natural gas exports largely through increased natural gas production. Increased natural gas production satisfies about 60 to 70 percent of the increase in natural gas exports, with a minor additional contribution from increased imports from Canada. Across most cases, about three-quarters of this increased production is from shale sources.

• The remaining portion is supplied by natural gas that would have been consumed domestically if not for the higher prices. The electric power sector accounts for the majority of the decrease in delivered natural gas. Due to higher prices, the electric power sector primarily shifts to coal-fired generation, and secondarily to renewable sources, though there is some decrease in total generation due to the higher price of natural gas. There is also a small reduction in natural gas use in all sectors from efficiency improvements and conservation.

• Even while consuming less, on average, consumers will see an increase in their natural gas and electricity expenditures. On average, from 2015 to 2035, natural gas bills paid by end-use consumers in the residential, commercial, and industrial sectors combined increase 3 to 9 percent over a comparable baseline case with no exports, depending on the export scenario and case, while increases in electricity bills paid by end-use customers range from 1 to 3 percent. In the rapid growth cases, the increase is notably greater in the early years relative to the later years. The slower export growth cases tend to show natural gas bills increasing more towards the end of the projection period

The U.S. Energy Information Administration is a government agency who’s charter is to act as an organization that “collects, analyzes, and disseminates independent and impartial energy information to promote sound policymaking, efficient markets, and public understanding of energy and its interaction with the economy and the environment”. Unlike the FERC they really are fairly neutral parties and they seem to the “independent and impartial” aspects of their functions seriously.

A lot of my research has centered around eia.gov because they give so much raw data – and then they couple it with hundreds of different ways to correlate it, visualize it, and analyze it. Since day one they’ve been a thorn in the side of PennEast because eia.gov data regularly repudiates a number of PennEast’s key justification claims.

One of their handy tools to help make sense of all the information out there is their “Natural Gas Weekly Update“. It’s kind of like a newsletter that snapshots what happened in the week prior in the natural gas markets. They give pricing, capacity, supply, and demand numbers for the week but also provide some light analysis to explain larger forces driving the market and what might be coming up in future weeks or months.

There are a number of useful nuggets of information in here that taken together land a heavy blow against PennEast’s so-called justification for their pipeline, including:

The levels of natural gas going to electrical power generation is more dependent on pricing and the weather than any other factor. The record for consumption by electrical plants was hit in 2012 when we had fewer natural gas fired plants than we do today.

Retirement of coal-fired plants is a red-herring. EIA notes “It’s important to note that retiring coal-fired capacity does not necessarily result in a significant change in generation; many of the retiring plants are old and not used much.”.

The two above points taken together mean that you shouldn’t put too much credence on people pointing to the retirement of coal-fired plants as a big driver of natural gas consumption. Yes there will be some uptake but it is fairly moderate in size. When PennEast talks about natural gas replacing coal or speaks of supplying the Gilbert electrical plant in Holland Township they are not talking about substantial amounts. Mostly they’re talking about backup generation facilities (e.g. what Gilbert is) that go mostly unused. Which reinforces the question again – when all of these assets are sitting around not using the gas, where’s it going to go?

There is further data on the overall system’s capacity and the production numbers:

There’s already an enormous amount of elasticity in the system. The generation numbers show that we can already accomodate up to 5 billion cubic feet of day of changes in consumption without significantly impacting the system as a whole.

Gross production is up 8% year over year, while LNG imports into the country are down 64%.

In other words we are drowning in natural gas and seem to have adequate pipes to move it around. This is further underlined by the next piece of data:

Price volatility compared to a year prior is down 1100%. Last year during the polar vortex prices spiked on a couple of days to around $110. This year prices spiked to….$8.00.

And there you have the gun pointing at PennEast’s head. Their whole house of cards is really based on that $110 number from a year ago. It’s what they use to scare the crap out of people and indicate that they are our saviors.

In reality the problems that lead to that $110 have been fixed. As I’ve mentioned in previous posts, we’ve had new pipelines come on line in 2014 which helped with capacity issues. And FERC has mandated coordination between major consumers and producers to make the existing infrastructure far more efficient. The net result: $8 vs. $110.

While most of us hate Mondays, I imagine PennEast dreads Thursdays. Thursday, the day of the eia.gov Natural Gas Weekly Update that puts yet another nail in PennEast’s coffin.

Part 1 of this series focused mostly on the pre-meeting portion of the event. That was where people talked one-on-one with various PennEast reps about their concerns and issues.

For the rest of the meeting we all sat at our tables while PennEast gave their pitch, with many, many questions intervening.

A High School Student humbles PennEast
One questioner that blew me away entirely was Alexandra Switzler. In total her family had three generations represented at the meeting – herself, a high school student (!), her mom Angele, and her grandmother Vaughana. Alexandra spoke near the end of the meeting but she absolutely floored the entire assembly.

The words by themselves are strong enough:

I don’t give a damn about the money. This is my family. Yeah we’re losing 2/3 of our property value. I can understand how it’s horrible. But you’re coming in here with construction, you’re coming in here with all these horrible things, and putting my family in danger. And you’re expecting me to be OK with that because of money?

I’m young. I’m young and I understand I’m just a high school student right now. But this wrong. And this unity in…you can come in here with your fancy dinners, and you can come in here with your cheap coffee, and you can give us much coconut milk as you want. But that’s not going to change any of the unity we have here. Because this is our home.

But the video showing how emotional she was really demonstrates her impact on the room even better:

People are aware of the process now and not going to be tricked by PennEast’s banter

Alissa Harris asked at the start of the meeting how many people had NOT been to a Penn East presentation or scoping session. Only one person held up their hand. Everyone else in the room had by now had extensive contact with PennEast and FERC and done their research. You could see Alissa was very unhappy to have only 1 mark in the crowd to pitch to.

PennEast reps are either not aware of the facts, or deliberately deceitful
They started the formal session with their presentation but it was the same old presentation they’ve given many times before. Early into it when they kept talking about NJ and PA I raised my hand. I asked both representatives (Alissa and Mike), “Can you comment on the proposed MARC II pipeline from Crestwood Partners? They issued a press release that said they would be connecting the MARC II to PennEast to send gas to New England”.

This resulted in vehement denial by both PennEast representations. The look of shock and fury on both faces was obvious. Alissa said “Absolutely not!”. Mike shook his head and said “Not true, not true”. When I pressed him he said “That’s your opinion, not a fact”. When I tried to press them further Patricia very quickly said “We have a lot of ground to cover let’s move on”.

This tactic was used several times during the meeting by Alissa to get past questions they didn’t want to answer. Many times she rushed into the “next topic” to shut people up.

By the way, the aforementioned information is available in this press release:

“The MARC II Pipeline will be a new 30-mile, 30” pipeline connecting the CNYOG MARC I Pipeline with the PennEast Pipeline and Transco’s Leidy Line. MARC II will connect the abundant supplies of natural gas directly connected to the existing CNYOG system with major regional end-user markets downstream of existing transportation bottlenecks, providing reliable, cost-competitive supplies of natural gas to consumers in the Mid-Atlantic and New England markets“.

The Purpose and Need is “our member companies are willing to buy gas from ourselves”

Mike from PennEast described the pipeline “purpose and need” as a “chicken and egg” process. How do you build a pipeline without gauging interest? And how can you gauge interest without having a pipeline to sell space on? They say to get around that they do a non-binding “Open Season” to gauge interest. If they get enough interest then they have justification for the pipeline. They make it very clear that to their eyes if they deliver on the “Open Season” promises then they have all the justification they need.

The problem of course is that the Open Season “Buyers” are mostly their other pipeline “midstream” partners. They’re justifying the pipeline by saying they’ll sell the gas to..themselves.

Rush, rush, rush and get the damn thing in the ground as fast as you can
Mike from PennEast mentioned that construction times run from April 1st to late October. They’re constrained to those months due to migratory species migration times. Most likely they also can’t dig effectively when the ground is frozen. The pipeline will be built in 4 or 5 concurrent “sprints” according to him- that is, they will be building five sections at once simultaneously. In addition the major river horizontal drilling will be done independently as well (Delaware, Lehigh, Susquehana). Their projected construction time is 7 months – exactly April 1st to late October. There was no mention of what would happen if they were late. If they hit delays do you think PennEast will wait 5 months for the next season to open up? Or do you think they’ll speed things up even more to hit the end of October Deadline?

Angele makes an impact
Angele Switlzler is well known to me. Or at least her writing is. She posts many comments to the FERC eLibrary as “Emma Switzler” (she’s got a lot of names!). She also is part of the three generations present at the meeting, her self, her daughter Alexandra mentioned above, and her mom Vaughana. Angele had a number things to say to PennEast that they did not receive very well.

I am concerned about safety. Recently the millennium pipeline, that has only been in service since 2008 had a leak, a 42 inch pipeline, the leak was only discovered because of bubbling in the creek. It didn’t become a major incident because the guy that discovered wasn’t smoking a cigarette. How many of us are going to feel really great about a backyard barbecue?

PennEast had no response to this. Later on she asked:

I am very scared about the arsenic that might be released into our wells. You say not to worry, but we have a famous geologist that predicts it is possible. When you have a state like California that we are going to need to help out because they support our food, and yet you guys are putting at risk our water!

What she’s referring to above is a Princeton University professor who wrote several detailed presentations to the FERC outlining the arsenic problem in Northern Hunterdon County, and how the pipeline construction could release a highly toxic version of arsenic into people’s drinking wells. PennEast assures us that this won’t be a problem – and if it is they’ll just keep getting us water somehow to “mitigate” any issues.

Finally, later in the meeting after several people had talked in very reasoned tones and insisted that PennEast people were just doing their jobs, and maybe disruptions were bad, Angele gave us her own take on the situation:

In what culture is it appropriate for victims to respond to their pillagers and marauders, the people who are going to leave them with a bomb on their property, politeness is not an appropriate response. You are classifying my family and my kids as second class citizens because you will be too cheap to put in the maximum thickness of pipe because your companies have done a cost benefit analysis that decides it is better to pay off our families if we are killed, if we have any family left than give us the safest pipeline possible.

At yet another exchange with PennEast, PennEast Mike offered her a chance to tour a pipeline route. He said he’d be happy to show her an existing pipeline that had been place for a couple of years. Alissa started talking about contacting people to get permission, but at the end of the exchange when it was somewhat loud Mike muttered “we own the right of way, we don’t have to ask anyone permission” while shaking his head. I don’t think many people heard him but he basically was offering guided tours on people’s land without even asking them or warning them first.

Hopefully they will get permission anyway though, and Angele has indicated she will take him on the tour if it’s real. If nothing else she can interview people who have endured pipeline construction and get an insiders take on what the construction is really like and how they deal with all the issues.

No dirt is removed from the site
When discussing restoration a gentleman in the audience asked “What happens to all of the displaced dirt from where the pipeline is placed. It’s 3’ wide, where does it go?”. Jeff England from PennEast replied “No soils is removed. It’s all compacted in place”. When asked for clarification around wetlands he said “We don’t compact there, instead the dirt is feathered into larger area”. Since the pipeline has to be at least three feet below the surface this means they’re distributing dirt from 3′ below the surface back up at the surface again. This dovetails with things I’ve heard about the topsoil never being the same after pipeline construction and yields plummeting.

PennEast reps get agitated

Around this point Patricia repeatedly got flustered and angry at questions and started cutting people off regularly. She clearly wanted to just give a nice clean presentation to a bunch of country hicks he didn’t know any better and probably still have manure between her toes. She obviously hated how informed the audience was and took it out on us on several occasions.

Deceptive pictures used to mislead the public

At one point in the presentation they were showing how effective restoration was with a series of pictures of pipeline routes several years after construction. Or at least that’s what they claimed. A gentleman raised his hand and said to go back a few slides. After a bit they found the correct slide. He shouted “How old is that picture?”. Mike said he didn’t know. The man then asked, “How big is that cut? Does that look like 50’ to you?”. Someone replied “No, maybe 25 if that.”. The man then asked “What size pipeline was put in there?” Mike replied he didn’t know but it may have been a smaller one. The flustered man shouted “Why are you showing us this picture? This is nothing like the requirements for a 36” pipeline!”.

There was much discussion back and forth and at the end the PennEast reps were abashed at being called out on such an obviously deception. In selling their 3′ wide pipeline it looks like they tried to show us the impact of a 16″ or 12″ pipeline and just pretend it was a 3 footer.

How wide is the construction zone?

During the above exchange Patricia said the construction easement would be 125’ – a contradiction to the official 100’ cited in their documentation. Was this an accidental slip by her? I’ve heard others say 125’ is more realistic.

What the heck is a Woodlands Assessment?
A man said “My lands are Woodlands Assessed. It’s my living.” Another man declared he had one too, and described how this impacted his taxes on a yearly basis – an $8,000 bill vs. a $30,000. PennEast didn’t understand his question. They had never heard of Woodlands Assessed. The man pushed on how he would get paid by PennEast to compensate and they couldn’t answer.

Related to the above I asked the question, “Do you ever make payments in perpetuity for issues that are variable over time, or do you only do one-time payments”. For example in this case taxes can vary year to year depending on property values and changes in law.

Jeff England responded that they only do one-time payments. So you’re basically guaranteed to get an unfair payout unless property values never change and neither do any laws.

PennEast can’t see the 800 pound gorilla in the room

I asked the question “Why don’t we address the 800 pound gorilla in the room: eminent domain. So far in this presentation there’s been on mention whatsoever of eminent domain at all. Can you address that now?”. Mike from PennEast hemmed and hawed and refused to give any answer. He did say “We don’t do eminent domain, the government does”. He was called out on that evasion by several people. I finally said “If you don’t want to discuss eminent domain that’s OK. Just say so.” Mike responded “We feel that this is not the proper time in the process to discuss eminent domain”. This was the most important thing on people’s minds at the meeting and they flat out refused to even mention it.

An appeal to reason
An extraordinarily eloquent and soft spoken man stood up and explained that he understood that the PennEast employees were just people doing their job. There was no ill will between them as people. But every town in Hunterdon county has voted a resolution against this pipeline. He said, “Perhaps you should recognize that we have irreconcilable differences. We will never accept what you’re asking of us”.

This was Vince DiBianca, I contacted him today and he expanded on his statements and his recollections of what he said:

This pipeline is nonsensical in almost every aspect. It damages our fragile planet’s Eco-system. We do not have the demand for the supply. The final product is being “exported” and offers little value to the communities being disrupted. It is transporting fracked gas which is highly undesirable. It is disrupting the most peaceful, picturesque communities in our state. The vast majority of the citizens are against it. Employment opportunities are grossly overstated and short-term. It would be better all-around if we created more permanent jobs while developing needed clean & renewable energy sources. It is dangerous to both the water and soil.

Not the least of which is it is proposed to come straight down my driveway on my property which houses my family, many animals and 1775 buildings. The construction process will be horrendous for my family, the forest will be ransacked and the animals (alpaca, llama, horses that I have on my property) dislodged . Property value will be decreased.

There are more reasons. Suffice it to say, our ommunity is absolutely resolute in its opposition to this pipeline project. We will continue to band together to fight this in every way possible including whatever legal means are necessary. We’ve already contacted eminent domain lawyers for their advice.

This is just not right. How much more loudly can people speak and stand up for their rights? Who’s listening?

Access roads not part of scoping

There was a discussion about construction access roads described by Jeff England. He said as a general rule if there is a “mile plus” between existing access points they will need to build temporary construction access roads. This is done “for the safety of the workers so they can get out of an area if a situation arises”. This was a somewhat accidental admission that pipeline construction is dangerous to all parties involved, including the people doing the construction.

They also mentioned that all of these sites are determined after the scoping period closes so the public has zero official say in it.

An eloquent, moving lesson in history and the rights of the people in America
I hope someone recorded this woman. She was an older woman, frail of stature by with a vibrant air about her, who made what may have been the most eloquent speech of the night. She spoke of the landowners being forced to be part of PennEast’s solution, when none of them ever wanted to be involved with PennEast’s problems to start with. She spoke of eminent domain and the way it’s been perverted over the years. She spoke of the Constitution and how eminent domain is such a clear violation of its spirit and letter. She finished discussing how negotiations always must involve trust on some level or they will never work. Given the way PennEast has treated landowners how could they ever believe that trust on any level could be achieved?

This one was one of several speeches that visibly rocked PennEast representatives back on their heels. They’re not all drones and not all evil energy executives. Some of them are doing this just as a job, and you could see the impact some of these stories and narratives were having on them. I doubt any one story would make a difference to them but the cumulative impact on them must be real. I think it shocks the more honest PennEast employees to their bones when they hear people of this caliber criticizing the very core of their existence and what they’re doing to people in the way of their plans.

Why oh why does it have to be so big?

A man stated that several construction projects of similar scope were done on much smaller easements. They asked why PennEast’s ROW has to be so much larger than those. He cited recent permanent right of ways that were down to almost 25′ for an equivalently sized pipe. PennEast predictably had no answers.

We’ve been here before

A woman stated that we as a community are not looking at pipeline issues for the first time. The region has extensive experiences with pipeline proposals and construction and can extrapolate future pipeline issues from what they’ve personally witnessed in the past. They mentioned Leidy and Pilgrim pipeline as two examples where the pipeline had been destabilized in a very short time and that PennEast hasn’t shown any evidence that their construction methods are any better. She concluded that PennEast’s constant assurances don’t match the hard-won experiences we’ve had with other pipeline companies.

Well, one day we’ll actually secure the right away. We’re working on that…
She said that she did not believe PennEast’s assertions that they had secured a right of way from JCP&L, and so she called up the JCP&L manager in charge of their easements. The land management manager there said they had never spoken to PennEast. She turned to Mike and said “Mike, I’ll tell you right now. You’re a liar”. Mike hemmed and hawed (as he is wont to do) and admitted that maybe he had slipped up a bit and that they were “still negotiating” with the power company on the easement. So even though they call this their “preferred alternate route” they still don’t even have a guarantee they can colocate like they claim they can.

The eldest Switzler family, Vaughana, spoke several times. On one occasion she said “You’re going to ruin a big part of my life here….You invite me here and I can’t even raise my voice to defend my life and my family’s lives”.

On the latter part she was referring to her run-in with the state troopers at the event. She had gotten very emotional and started yelling at the PennEast reps. A state trooper took her aside and told her to keep it civil. She understandably was not happy with this – as she implies, this isn’t a Sunday social she’s at, she’s fighting for her family here.

In another part of the night she said:

I have had two real estate agents tell me that my property will be reduced by 1/3 in value and that value will never be restored, nobody wants to buy a farm with a pipeline on it. This is an investment for my family.

At another she spoke of the other members of her family not present. A number of them have severe health issues and PennEast is going to impact them severely. In particular she talked of her son.

My son had a traumatic brain injury from the 82nd airborne, defending people like you, and you are going to take away the only place he has peace, walking his dogs.

We know very little of New Jersey

In a rare candid interlude two of the PennEast reps admitted, “We know very little of New Jersey. It’s all new to us. We’ve never heard of these programs”. This happened after repeated questions about the Woodlands Assessment tax issue.

Both Alissa and Mike and Jeff England went into great detail about how they don’t know much of anything about the various laws and issues in our state. Pretty much everyone in the room was shaking their head with their mouth open. These people presume to build this massive pipeline in our state and they don’t know jack squat about anything.

What a great way to end a meeting “We haven’t a fracking clue what we’re doing here, but trust us anyway!”.

Susan from Milford, NJ has made a series of FERC submissions which are very well thought out and make persuasive arguments against the pipeline. She continued with one today that is particularly on-point and should make the FERC sit up and take notice:

I call on the FERC to return the “NO BUILD” option for the PennEast pipeline project (hereinafter “PE”). Not only does this project offer NO benefit to the people along its route (it will take the gas to South
Jersey and New England, not to the residents along the proposed route in PA or NJ) but also it is becoming increasingly obvious that this project is not financially viable.

The six member companies of PE are listed as its “customers” but their distribution networks were already in place so there is no real customer increase. Despite PE’s vague denials, the only way PE could make back their investment would have been to get gas to New England, ready for anticipated LNG export stations, or to Cove Point for export. But according to the following article, (www.moodys.com/research/MoodysLiquefied-natural-gas-projects-nixed-amid-lower-oil-prices–PR_322439?WT.mc_id=AM~RmluYW56ZW4ubmV0X1JTQl9SYXRpbmdzX05ld3NfTm9fVHJhbnNsYXRpb25z~20150407_PR_322439) “Moody’s says low LNG prices will result in the cancellation of the vast majority of the nearly 30 liquefaction projects currently proposed in the US, 18 in western Canada, and four in eastern Canada.”

Without these anticipated export facilities, PE simply will not have the revenue from selling this gas to the existing customers of its 6 member companies. There are no new significant customer bases in NJ, nor any major coal-fired power plants to be upgraded along this proposed route.

Indeed, the Gilbert station in Holland Twp is already served by Elizabethtown Gas, and will only be a back-up station.

The article goes on to say “However, projects already under construction will continue as planned, which will lead to excess liquefaction capacity over the rest of this decade. Notably, through 2017, Australia will see
new capacity come online from roughly $180 billion in investments, which will result in a 25% increase in global liquefaction capacity. Likewise, the US is poised to become a net LNG exporter after the Sabine Pass
Liquefaction LLC (Ba3 stable) project goes into service in the fourth quarter of 2015.”

Susan is absolutely right. The Marcellus gas projects have always been somewhat tenuous because fracking is a very expensive operation compared to conventional gas drilling. You need fairly high prices to support it, somewhere in the neighborhood of $4 per thousand cubic feet. Any lower than that and you’re drilling at a loss.

Thanks to Saudi Arabia flooding the market with cheap oil, oil prices have plummeted, and natural gas prices have likewise followed suit. That, combined with the massive over-supply from Marcellus, has landed a one-two punch to the industry. They’ve got natural gas coming out of their ears right when prices are plummeting.

LNG export was seen as the savior here. Even though LNG is very expensive to produce (liquification and cross-continent shipping is very expensive), it was viable for awhile. After the Fukashima nuclear disaster Japan closed all their nuclear facilities and their demand for natural gas soared tremendously. Europe gets a lot of gas from the Russia, which is a politically unsavory source. And India is just plain starving for natural gas.

However, the window for Marcellus gas exports seems to be closing. The continued price pressure from the Saudis has devastated the industry (which was the Saudi’s exact intent). And other countries are stepping up.

Susan continues:

Not only is the PE project a certain detriment to the environment, a credible threat to the drinking water of 15 million people and a constant safety risk to all those within the mile wide “strike zone”, but now it
isn’t a money maker. The article states “Greenfield projects on undeveloped property are much more expensive, INVOLVE MORE CONSTRUCTION RISK (emphasis added), and take longer to build than brownfield projects, which re-purpose existing LNG regasification sites. Greenfield projects are also frequently challenged by local opposition and occasionally by untested laws and regulations. Based on the public estimates of companies
building new LNG liquefaction capacity, the median cost to build a US brownfield project is roughly $800 per ton of capacity, compared with the more advanced Australian greenfield projects, now estimated at around
$3,400 per ton.”

The information that Susan cites here is the other problem PennEast (and all the other new pipeline proposals) faces. They act like they exist in a vacuum, but they do not. There are international competitors to PennEast and Marcellus gas, and they haven’t been sitting on their hands. Australia is now emerging as a strong exporter of LNG. And anyone who can read a map can see that Australia is one helluva lot closer to Japan than the U.S. is. Australia is in a prime position to get cheap exports to Japan, Southeast Asia, and India. The U.S. simply can’t match their prices because we have to ship the gas so many thousands of miles further than they do.

Step back for a minute and imagine just how awful this scenario is. Let’s say for argument that FERC ignores everyone and approves this pipeline, and PennEast then goes ahead and builds it with their leveraged money. Let’s skip ahead in our imagination to 2017 at the ribbon cutting ceremony where the head of PennEast starts the first flow of gas. Protesters are chanting and displaying their anti-pipeline signs, with union representatives and industry cheerleaders intimidating and threatening the protester crowd.

Then skip ahead in your mind a little further, to 2019. LNG is at historic lows as Australia blankets Asia with its gas thanks to its geographic advantage. Nearly all of the proposals for LNG export terminals in the U.S. and Canada are withdrawn by their proposing companies. Cove Point LNG export and Sabine Pass limp along but are struggling to compete with Australia.

Meanwhile the Northeast experiences record low prices and consistently beats the Henry Hub prices as projects such as the Leidy Southeast Expansion come on line, and large industrial and electrical generation consumers continue to streamline their operations and make the most of the infrastructure in the region.

In other news PennEast quietly announces in their quarterly SEC filing that their pipeline is only running at 20% of capacity as one drilling company after another abandons their Marcellus properties. PennEast begins suffering repeating quarterly losses. They quietly mull filing to FERC to officially abandon their pipeline as its continued operation drags down the bottom line of its member companies. Investors start talking about lawsuits and SEC investigations as member companies declare losses year after year…..

Just imagine the government giving PennEast the power of eminent domain over your property, and then watching them go bankrupt 5 years later, with you left with an empty pipeline buried in your ground.

It sounds like a crazy, whacked-out scenario but it’s not. Energy companies historically like to take huge risks and shoot for the moon for large rewards. And as a result they also regularly fail and take gigantic loses. There’s a boom and bust cycle there that you can see across the country, little towns in Texas that were hosts to million dollar homes and fancy stores that are now all abandoned and shuttered up when the oil dried up. The same will be happening in PA one day soon.

A reader pointed me to a recent FERC “2014 State of the Markets Report”. This report is created by the FERC Office of Enforcement’s Division of Energy Market Oversight, and is the “staff’s annual opportunity to share our assessment on natural gas, electric, and other energy markets developments during the past year to better inform the Commission’s understanding of current and future trends”.

What they do in this presentation is look at the 2013/2014 season and compare that to how 2014/2015 has shaped up, and then make some projections into the future to indicate where they think the overall energy markets are going. They look at the markets in this way because the winter is the most important season for gauging natural gas usage and prices, so they time their coverage so the previous entire winter is included:

For our purposes I’ll focus on some interesting tidbits they dropped relevant to the natural gas markets.

“We’ll make it up on volume”

First up is page 8. I would have overlooked this slide but fortunately the reader who contacted me about this presentation has keener eyes than I do 🙂

Slide 8 is entitled “Marcellus Production Overwhelms Infrastructure”, and has a graph showing overall natural gas production as compared to pipeline capacity. This slide is fascinating for the amount of information it contains that text below completely fails to address. It shows that for awhile now pipeline capacity has been below production ability, due entirely to Marcellus Shale. However, the graphs project that by 2016 pipeline capacity will have been increased to match all production. This is good, right?

Sure. But here’s the problem. The graph shows two lines. One is Total Proposed, the other is Likely Pipeline Capacity. In 2016 the Likely Pipeline Capacity line starts creeping above the total production numbers, showing that our capacity will be exceeding production somewhat. That’s not good.

But there’s worse news there. The Total Proposed line takes a sharp bend at this point and diverges wildly from the Likely Pipeline Capacity one.

From this we end up with three numbers by 2018:

– 25 billion cubic feet/day: This is expected total production per day in 2018
– 32.5 billion cubic feet/day: This is the Likely Pipeline Capacity number in 2018.
– 40 billion cubic feet/day: This is the Total Proposed capacity in 2018.

What does this all mean? It means this:

– By 2018 FERC expects enough pipelines will actually be built to have 7.5 billion cubic feet/day of excess capacity (by subtracting the production totals from the Likely Pipeline Capacity number). That means we’ll have 30% more pipeline than we’ll actually need. Why would we do this?

– Worse, FERC sees 15 billion cubic feet/day of excess pipeline capacity being proposed by industry (by subtracting the production totals from the Total Proposed number). This is 60% over capacity being proposed by industry.

These numbers alone are pretty shocking, but that’s not the end of the story. If you read between the lines you can see that the FERC doesn’t expect all of those industry pipeline proposals to get built. Do the numbers and FERC seems to expect half of the pipeline proposals to never see the light of day for one reason or another.

This is clear evidence that FERC is aware of the cumulative impact of all these pipeline proposals, and they know it’s ridiculous how many are being proposed. In the words of the reader who forwarded me this:

FERC and the industry don’t expect all these pipelines to be built. Industry strategy for pipeline approval appears to be “Let’s just fling crap at the wall and see what sticks”.

Put another way, their strategy is to throw out a barrage of pipeline proposals, and then let the public do the hard work of figuring out which make sense via the scoping process.

Gas infrastructure in 2015 performed “Remarkably Well”
If we skip ahead to page 16, FERC is now talking about how 2015 fared compared to 2014. 2014 had the polar vortex and markets were stressed to their limits, but 2015 was no slouch either, with record snow in some areas and extreme cold hitting us again.

So how did the natural gas markets fare in 2015? Here’s what they say:

By many measures, this winter rivaled last year’s in terms of record low temperatures across much of the country, and in overall demand for electricity. However, compared to last winter, with its series of Polar Vortex events in early 2014, the wholesale power markets and natural gas pipeline system performed remarkably well.

They continue on the next page:

Despite challenging winter conditions, prices in the electricity markets remained moderate, helped by stable natural gas prices and lower forced outage rates. This stands in contrast to last winter, when outage rates were high, price spikes were common, and PJM and NYISO both sought and received authority to waive their $1,000 MWh offer caps to ensure that generators would be able to recover their fuel costs. Last winter, many generators also complained that they were unable to secure sufficient natural gas supplies to operate their
plants.

Huh. So we had two bad winters in a row, but the most recent one was weathered very well by our energy infrastructure. How is that possible?

FERC tell us how:

Notably, actions taken since last winter by the RTOs and market participants, such as PJM’s new Cold Weather Preparation Guidelines and the continuation of ISO-NE’s Winter Reliability Program for a second winter, appear to have improved operational performance and the availability of units, which helped to moderate prices. For example, real-time prices at the PJM Western Hub were $400 MWh lower on PJM’s peak day this winter, than on last winter’s peak day. The drop in real-time prices can also be attributed to an improved forced outage rate, with PJM’s outage rate dropping from 22% last winter to 12% this winter.

Across the RTOs and ISOs, no significant outages or major operational issues were reported and the bulk electrical system performed well despite changes to the resource supply mix. In particular, ISO-NE, which found itself in a stressed operational state last year, did not experience any significant reliability issues this winter despite the retirement of the Vermont Yankee nuclear station in late December, which removed 615 MW of baseload capacity from the grid.”

They continue to talk about the remarkable upswing in 2015 compared to the prior year:

As shown by the price differentials in this chart, the contrast between last year’s and this year’s winter cannot be understated. While no single reason can explain why the wholesale power markets performed better this winter, the relative improvements seen in terms of prices and operations are likely the result of several factors.

In addition to better cold-weather preparation of assets and measures approved by the Commission, such as New England’s Winter Reliability Program, electric transmission and natural gas pipeline operators are now communicating more effectively during periods of stress to improve coordination and the reliability of their systems. Moreover, as discussed below, record natural gas production, plentiful storage inventories, new pipeline infrastructure, and low oil prices, are factors that also contributed to this winter’s moderate electricity prices and the improved performance of the electricity markets.”

Skipping ahead page 20 reinforces this notion, it looks at the hub spot prices and notes that they were much lower in 2015 than they were in 2014, and that volatility was extraordinarily lower this year compared to last.

Finally on page 21 FERC notes that additional pipelines did play a role in stabilizing markets and keeping gas cheap in 2015:

Increased pipeline capacity to move natural gas into major Northeast demand centers, particularly New York City, was a major reason for the moderate price volatility the region experienced this past winter. This table shows some of the pipeline projects that went into service in 2014 in the Northeast. Operators put nearly 4 Bcfd of new pipeline capacity into service in the Marcellus and Utica Shale regions, with approximately 2.5 Bcfd of this new capacity serving Northeast demand and 1.5 Bcfd providing takeaway capacity for producers. The Texas Eastern’s TEAM 2014 expansion and Transco’s Northeast Connector added new capacity to move supply into the New Jersey and New York markets.

So pipeline projects that came online in 2014 were the final bit that helped 2015’s winter be a good from a natural gas perspective. We got extra capacity in here and now we seem to be good. For the future demand for natural gas is predicted to be relatively flat except for some coal plants being converted to natural gas, but we seem to have sufficient over capacity to deal with that.

So who needs PennEast?
I admit, I buried the lede here, but I think the journey along the way was important.

The reason I’m posting all this information is to tie it all back to PennEast’s justification for this pipeline. If you recall PennEast’s sole justifications are:

Well, guess what PennEast? If you read the FERCs annual report, those problems are solved. Do we have low prices? Check. Is price volatility fixed? Check. Are electrical and industrial consumers being supplied? Check.

I’ve put together a FERC submission detailing Dalton expansion project in relation to PennEast, and other projects where PennEast will clearly be shipping gas out of the Eastern PA/NJ markets. Will update with the FERC link once it’s available.